Appeal court sends £4m solicitors’ negligence claim to trial

The Court of Appeal has overturned a ruling that gave a national law firm summary judgment in a case alleging that its negligence had caused a company to lose a £4m intellectual property licensing deal with a global engineering giant.

In Jon Williams & Anor v HCB Solicitors [2017] EWCA Civ 38, the court allowed the appeal by businessman Jon Williams against a ruling by HH Judge McKenna in the Birmingham District Registry in favour of HCB Solicitors.

The court said it was unclear what reasons underlay the judge’s conclusion, and that controversial points raised in the case should be decided at trial.

HCB, which has a network of 24 offices across the country, was instructed by Mr Williams, who was the sole shareholder in a company, Vital Industries, that had developed a range of window and door products. He wished to sell his company but extract the intellectual property rights at the same time.

The idea was that he would incorporate a second company, Genesis Range, to acquire the rights and license their use back to Vital, which was to be acquired by Firstmain Investments for £170,000 in cash together with deferred consideration of £50,000 to be paid by 18 monthly instalments.

As part of the agreement, Genesis was to purchase the rights from Vital for £45,000. In the event, the solicitors from HCB and those for Firstmain agreed that the £45,000 nominally due from Genesis to Vital did not need to be recorded as part of the purchase price.

But the judgment recorded that “unfortunately” the share price agreement governing the sale mentioned the £45,000.

Soon after the sale was completed in July 2012, Mr Williams and Genesis reached an agreement permitting a UK subsidiary of multinational company ThyssenKrupp (TKM) to develop and market products using the IP rights.

But at around that time, Firstmain defaulted on paying the deferred consideration, and when Mr Williams demanded payment of this and royalties due under the licence, it alleged that the assignment of rights to Genesis had been ineffective because the £45,000 had not been paid. It contended that the rights therefore remained vested in a subsidiary of Vital, meaning no further payments were due.

Mr Williams and Genesis alleged that due to this dispute over the ownership of the rights, TKM walked away from the agreement. They claimed HCB was responsible for defective drafting of the share purchase agreement and claimed damages of more than £4m.

HHJ McKenna ruled in favour of HCB, which applied for summary judgment on the basis the claim had no prospect of success. He said: “Nowhere is there any indication that any obligation on Genesis to pay Vital £45,000 for the rights is a breach which would entitle Vital not to transfer the rights to Genesis. On the contrary.”

He went on: “It follows that the agreements drafted by the defendant were, in fact, effective to do what it was required that they should do. In those circumstances, as it seems to me, the loss of the TKM business opportunity cannot, as a matter of law, have been caused by any breach of duty on the part of the defendant. The losses which are alleged are not losses which can possibly legally have been caused by the breach of the duty alleged.”

However, giving judgment in the appeal, Lord Justice Longmore said: “While HCB undoubtedly have a strong case, I have come to the conclusion that the case is not suitable for summary judgment and therefore the less I say at this stage the better.”

He added: “In any event, controversial points about scope of duty should, in principle, be decided at trial once the full facts are known rather than by way of summary judgment.”

Longmore LJ said there were reasons as to why HHJ McKenna may have believed summary judgment was appropriate, but he had not given them “and it would not be right to uphold a summary judgment for reasons which the judge did not himself give”.

He continued: “The court, anyway, would need to know more about the background facts before it could be sure that HCB could obtain judgment on these grounds.”

He concluded: “For these reasons I would allow this appeal, set aside the judge’s order and allow the claim (including the claim in respect of Firstmain’s failure to pay) to go to trial.”

Legal Futures Blog

Last month, MPs on the justice select committee asked minister Lord Keen what would happen when the government went ahead with its plan to raise the small claims limit for personal injury claims (from £1,000 to £5,000 for road traffic related claims and to £2,000 for everything else). As it is a jurisdiction in which lawyers do not generally operate – because legal costs are not recoverable – who might help claimants navigate what can still be a complex process? His answer, surprisingly, was claims management companies.